Federal regulators are preparing to pass judgment on Ethereum

Are regulators with the U.S. Securities and Exchange Commission gearing up to take down Ethereum? Given the saber-rattling by officials — including SEC Chairman Gary Gensler — it certainly seems possible.

The agency went on a crypto-regulatory spree in September. First, at its annual The SEC Speaks conference, officials promised to continue bringing enforcement actions and urged market participants to come in and register their products and services. Gensler even suggested crypto intermediaries should break up into separate legal entities and register each of their functions — exchange, broker-dealer, custodial functions, etc. — to mitigate conflicts of interest and enhance investor protection.

Next, there was an announcement that the SEC’s Division of Corporation Finance plans to add an Office of Crypto Assets and an Office of Industrial Applications and Services to its Disclosure Review Program this fall to assist in registering crypto market participants. Then, there was testimony before various Senate Committees on proposed legislation to overhaul crypto regulation, where Gensler reiterated his belief that nearly all digital assets are securities, implicitly endorsing his view that such digital assets and relevant intermediaries should register with the SEC.

But perhaps the most ground-shaking shots occurred when the SEC took aim at Ethereum, possibly reversing a years-long détente that began when a previous SEC official stated that Ether (ETH), along with Bitcoin (BTC), was not a security. In his testimony before the Senate Banking Committee, Gensler suggested that Ethereum’s transition to proof-of-stake (PoS) from proof-of-work could have brought Ethereum under the SEC’s purview because, by staking coins, “the investing public [is] anticipating profits based on the efforts of others.”

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Later, in a complaint filed against a token promotor, the SEC suggested that all transactions occurring on the Ethereum blockchain could fall within the SEC’s jurisdiction because more of Ethereum’s nodes are located in the U.S. than any other country. These recent positions on Ethereum appear to be clear SEC overreach and more saber-rattling meant to prompt the industry to register.

First, back in 2018, then-SEC Director of Corporation Finance William Hinman declared that Bitcoin and Ether were not securities in the eyes of the SEC. This seemed rooted both in the fact…